Sps. Viloria v.

Continental Airlines
G.R. No. 188288 January 16, 2012 J. Reyes
petitioners Spouses Fernando and Lourdes Viloria
respondents Continental Airlines, Inc.
summary Fernando bought 2 roundtrip tickets on board Continental Airlines from the travel agency
Holiday Travel after being informed by its employee Margaret that there were no more
available seats on the Amtrak (train). He later discovered that Amtrak seats were available
anytime so he demanded a refund from CAI, stating that Margaret defrauded him. However,
CAI responded that the tickets were non-refundable and that he could only be re-issued new
ones. He also failed to have the 2 tickets re-issued so he eventually filed a case for a refund +
damages. In its defense, CAI said that it cannot be liable for any of Margarets acts because she
was neither its employee nor its agent. The CA ruled that Holiday Travel was not an agent of
CAI and that there was only a contract of sale. The SC reversed this, and stated that all 4
elements of agency existed in this case. (see 1st issue in ratio. The rest arent as important)

facts of the case

Parties: Spouses Viloria = buyers of airplane tickets; Holiday Travel = travel agency; Continental Airlines = principal

~ Once upon a time, Fernando bought 2 roundtrip tickets from San Diego to Newark, New Jersey on board Continental
Airlines (CAI). He bought these tickets from Holiday Travel, specifically from Margaret Mager, for $400 each.
~ According to Fernando, he only agreed to buy these tickets because Margaret informed him that there were no available
seats at Amtrak, a train service provider.
~ Fernando wanted to reschedule to an earlier flight but CAI said they were non-refundable and that his only option was
to get a re-issuance of new tickets within a 1 year period from issuance of the old tickets. After this, he decided to inquire
with Amtrak about tickets and found out that there were free seats, contrary to what Margaret told him. Fernando then
returned to Holiday Travel to confront Margaret, stating that she had misled him into buying the plane tickets despite the
fact that Amtrak had available seats. Margaret was firm in her position and maintained that the tickets were non-
refundable.
~ When Fernando returned to the Philippines, he sent a demand letter to CAI requesting a refund alleging that he was
defrauded by Margaret. In response, CAI reiterated that his only option was a re-issuance of new tickets. >>> He then
requested to have the tickets replaced by a single round ticket to Los Angeles. However, he was informed that his wifes
old ticket was non-transferable and that the price of the LA ticket was $1867 so he would also have to pay for the
difference of price.
~ Spouses Viloria then filed a complaint against CAI praying for a refund of their tickets + damages. In response, CAI
interposed the ff. defenses: (a) Spouses Viloria have no right to ask for a refund as the subject tickets are non-refundable; (b)
Fernando cannot insist on using the ticket in Lourdes name for the purchase of a round trip ticket to Los Angeles since the same is
non-transferable; (c) as Mager is not a CAI employee, CAI is not liable for any of her acts; (d) CAI, its employees and agents
did not act in bad faith as to entitle Spouses Viloria to moral and exemplary damages and attorneys fees.

RTC: Spouses entitled to refund in view of Margarets misrepresentation. The RTC characterized Margaret as CAIs
agent, citing Arts. 1868 and 1869 of the CC. As its very name implies, a travel agency binds itself to render some service or
to do something in representation or on behalf of another, with the consent or authority of the latter. CAI impliedly if not
expressly acknowledged its principal-agent relationship with Margaret by its offer in the letter dated March 24, 1998 (the
letter explaining to spouses that they can get tickets re-issued because of Margarets actions)
CA: Reversed RTC and said that there was no principal-agency relationship thus CAI cannot be held liable for Margarets
act. Spouses Viloria, who have the burden of proof to establish the fact of agency, failed to present evidence
demonstrating that Holiday Travel is CAIs agent. Furthermore, contrary to Spouses Vilorias claim, the contractual
relationship between Holiday Travel and CAI is not an agency but that of a sale.

issue
WON there was a principal-agent relationship between CAI and Holiday Travel. YES, all 4 elements of agency are
present.

ratio

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1) A principal-agent relationship exists between CAI and Holiday Travel. (important issue)
The SC disagreed with the CA that the spouses failed to present enough evidence demonstrating the existence of
agency. The SC ruled that the CA failed to apply the fundamental civil law principles governing agency and
differentiating it from sale.
According to jurisprudence, the essential elements of agency are: (1) there is consent, express or implied of the
parties to establish the relationship; (2) the object is the executionof a juridical act in relation to a third person; (3) the
agent acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. (Rallos v. Felix go
Chan)
Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second elements
are present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby Holiday Travel would
enter into contracts of carriage with third persons on CAIs behalf. The third element is also present as it is undisputed
that Holiday Travel merely acted in a representative capacity and it is CAI and not Holiday Travel who is bound by the
contracts of carriage entered into by Holiday Travel on its behalf. The fourth element is also present considering that CAI
has not made any allegation that Holiday Travel exceeded the authority that was granted to it.
In fact, CAI consistently maintains the validity of the contracts of carriage that Holiday Travel executed with
Spouses Viloria and that Margaret was not guilty of any fraudulent misrepresentation. That CAI admits the authority of
Holiday Travel to enter into contracts of carriage on its behalf is easily discernible from its 2 letters to the spouses
informing them of their right to ask for a re-issuance, where it impliedly recognized the validity of the contracts entered
into by Holiday Travel with Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to
them the subject tickets, CAI did not deny that Holiday Travel is its authorized agent.
Prior to Spouses Vilorias filing of a complaint against it, CAI never refuted that it gave Holiday Travel the
power and authority to conclude contracts of carriage on its behalf. This Court cannot therefore allow CAI to take an
altogether different position and deny that Holiday Travel is its agent without taking into account whatever damage or
prejudice that may result from such denial or retraction to Spouses Viloria because of the principle of estoppel.

NOTE FROM REVIEWER: Sir included this case to showcase the problem of including the 3 rd and 4th elements of
agency.
~ Regarding the 3rd element.: the SC held that it was undisputed that Holiday Travel had contracted on behalf of CAI.
But Sir now asks: what if CAI had disputed it? Would that mean that there was no agency?
~ Regarding the 4th element: the SC held that Holiday Travel was acting within the scope of its authority because there
was no dispute from CAI. But Sir again asks: what if CAI had disputed this?

2) Distinctions between sale and agency.

In Commissioner of Internal Revenue v. Constantino, this Court ruled that the biggest difference between the 2
contracts is the transfer of ownership or title over the property subject of the contract. In an agency, the principal retains
ownership and control over the property and the agent merely acts on the principals behalf and under his instructions in
furtherance of the objectives for which the agency was established. On the other hand, the contract is clearly a sale if the
parties intended that the delivery of the property will effect a relinquishment of title, control and ownership in such a
way that the recipient may do with the property as he pleases.
In this case, it is undisputed that CAI and not Holiday Travel who is the party to the contracts of carriage
executed by Holiday Travel with third persons who desire to travel via Continental Airlines, and this conclusively
indicates the existence of a principal-agent relationship.

3) However, CAI cannot be liable because it was not proven that as principal, it had exercised fault or negligence
neither could it be proven that it exercised control over Holiday Travel.
In actions of quasi-delict, a principal can only be held liable for a tort committed by its agents employees if it has
been established by a preponderance of evidence that the principal was also at fault or negligent or that the principal
exercise control and supervision over them.
The SC cited China Air Lines v. CA (from our torts class), and said that if the cause of action of the plaintiff is based
on a tort committed by an employee of the airlines agent, there must be an independent showing that the airline
company was at fault or had contributed to the negligence of this employee. There is no vinculum juris between the airline
and its agents employees. The principal-agency relationship per se does not make the principal a party to a tort.
On the other hand, if the passengers cause of action against the airline is based on culpa contractual, it is not
necessary that there be evidence of the airline companys fault or negligence. As this Court previously stated in China Air
Lines and reiterated in Air France vs. Gillego, in an action based on a breach of contract of carriage, the aggrieved party

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does not have to prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of
the contract and the fact of its non-performance by the carrier.
In this case however, therecords are devoid of any evidence by which CAIs alleged liability can be substantiated.
Spouses Viloria did not present evidence that CAI was a party or had contributed to Margarets complained act either by
instructing or authorizing Holiday Travel and Mager to issue the said misrepresentation.
Furthermore, the spouses did not prove that CAI exercised control over Margaret, which is the basis of liability
for vicarious liability. (Court cited Cangco)

4) However, even assuming CAI can be liable for Margarets action, there can still be no refund because her fraud
cannot be considered causal fraud. It was just simple fraud. (oblicon shiz)
Court explained the difference between causal fraud (dolo causante) and incidental fraud (dolo incidente). In this
case, Margarets representation that Amtrak had no available seats does not in itself amount to serious fraud because
there could have been other reasons why she made this representation.

5) Furthermore, even assuming it was causal fraud, the Spouses cannot get a refund because they had ratified the
subject contracts by exercising their right to use the old tickets for the purchase of new ones.
The SC talked about voidable contracts and ratification under Art. 1392 of CC. In this case, the spouses pursued
the remedy or resolution under Art. 1191 and therefore cannot claim at the same time that there was a defect in the
contract that could make it voidable. Accordingly, by pursuing the remedy of rescission under Article 1191, the Vilorias
had impliedly admitted the validity of the subject contracts, forfeiting their right to demand their annulment.

6) CAIs contention that the non-transferability of wifes ticket was clear is untenable because this was not made clear
to the Spouses. It was only when Fernando had expressed interest to use the tickets to purchase one ticket that CAI
informed him of this.
Nonetheless, this refusal to use wifes ticket for the new one was just a casual breach. The general rule is that
rescission of a contract is not permitted for slight or casual breach. There was also no bad faith on the part of CAI when
the prices they offered for the tickets were higher than other airlines because this is within their prerogative.